Real Estate Forum

NEWS FRONT
CA Job Recovery Continues March Toward the Light

LOS ANGELES—The most recent report from the state Employment Development Department, released at the end of March, showed that California added 4,000 jobs to its non-farm employment base in February, after adding 1,500 positions in January. The numbers, says economist Christopher Thornberg of Beacon Economics here, show that the state’s employment recovery is on pace, albeit a slow one.

Still, it’s a positive sign since the labor force expanded by 5,200 and the number of unemployed Californians declined by almost 7,000, explains Thornberg. Although the unemployment rate remained steady, the underlying drivers of the unemployment rate calculation all show signs of improvement, he says.

Several job sectors across the state posted
healthy gains in February. Manufacturing
in particular stood out, adding 6,200 posi-
tions over the month. The information
industry, which encompasses software, pub-
lishing and entertainment, increased its
payrolls by 9,300. The professional and
business services sector also posted a gain
of 2,800 workers, driven entirely by increases
in the administrative segment of that sector.
And the less cyclical industries of education
and healthcare combined to create 6,100
new jobs in February as well.

An Unprecedented Time and Place for Investment

Real estate is a game of being at the right place at the right time. For the past few years, the conservative play has been the opportunistic investment du jour. Rarely does this happen with equities or bonds. But it makes sense when you hear what has happened.

First, I believe necessity-anchored retail—shopping centers with grocery and drug stores as their anchor tenants—is the foundation of our retail economy. Why? The answer is simple: people need to eat and remain healthy in all economic cycles. Period.

“The smart money,” known to most as institutional asset managers, endowments, banks, family offices and high-net worth individuals, often finds a spot for necessity retail in their portfolios. These centers often are located in high-growth markets or gateway cities, many along the West Coast.

According to Marcus & Millichap’s 2012 National Retail Report, all 44 markets tracked in the retail sector are forecasted to post job growth, vacancy declines and effective rent growth in 2012. This same report listed 10 markets with the lowest expected retail vacancy rates, including seven on the West Coast: Seattle, San Francisco, San Diego, San Jose, Los Angeles, Oakland and Orange County.

The recent recession created an opportunity in this category, much to the chagrin of banks. Developers often found the right places to build state-of-the-art shopping centers, replete with steady traffic patterns, the right demographics and healthy brand-name grocers. Their problem, however, was

By Christian Gabrielsen

that the economy didn’t cooperate from 2007 to 2012, and many ended up defaulting on their loans.

Banks don’t like defaults. They don’t like them in any form— especially not when it comes to real estate, for several reasons. First, they don’t have leasing departments to find tenants. Second, they don’t have a property management department to clean, fix and perform all the nitty-gritty a landlord has to do. Last and worst of all for the banks is that they now have cash reserve requirements, meaning they could tie up money normally used to lend (at a profit) as a backstop to pay for not only the upkeep, but also for interest payments and government-regulated minimums.

Now put the two together and an opportunity is created for those who are looking for attractive acquisitions. Imagine quality real estate owned by the banks, which don’t want these assets on their books and often discard them at significant discounts.

Experienced managers occasionally prey on distressed sellers. What makes this an unprecedented time and place is that the banks are the ones on the short end of the stick—they are the distressed sellers.

There is only so long the market can stay recessed, if not depressed. Thus, it doesn’t take much imagination to see that the banks will either find a solution or create a way to turn losses into profits. Today, however, those of us looking for real estate opportunities have to be left with an inner joy that we believe we have found ourselves in the right place at the right time.

Christian Gabrielsen is an executive vice president of Thompson National Properties, based in Irvine, CA. He may be contacted at c.gabrielsen@tnpre.com. The views expressed here are the author’s own.